World Bank Lowers Growth Forecast for Developing East Asia

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The World Bank has revised its growth projections for developing East Asia and the Pacific, citing various factors such as sluggish global demand, high-interest rates, and subdued trade, along with a slower-than-expected expansion in China.

In its most recent report published in Asia on Monday, the World Bank downgraded its growth forecast for the region to 5% for 2023, a slight decrease from the previous projection of 5.1% in April. Similarly, the growth forecast for 2024 has been adjusted to 4.5% from the earlier estimate of 4.8%.

Although the Bank maintained its 2023 growth projection for China at 5.1%, it revised its 2024 estimate downward to 4.4%, citing underlying structural issues, elevated debt levels, and weaknesses in the Chinese property sector as key reasons for the adjustment.

The organization emphasized the influence of external factors on growth in much of the region, while acknowledging that East Asian economies have made significant strides toward recovery from the various shocks, including the impacts of the Covid-19 pandemic. However, the World Bank cautioned that the pace of growth is expected to slow down.

Concerns were also raised about the escalation of both general government debt and corporate debt levels, especially in China, Thailand, and Vietnam. The World Bank emphasized that heightened debt levels could impede public and private investment, potentially leading to increased interest rates and borrowing costs for businesses.

The report highlighted the potential negative impact of high household debt in certain countries such as China, Malaysia, and Thailand, underscoring the adverse effect on consumption due to increased allocation of income toward debt servicing. The World Bank estimated that a 10-percentage-point rise in household debt could lead to a 0.4 percentage-point decline in consumption growth.

Furthermore, the World Bank pointed out that household spending in the developing East Asia and Pacific region remains below pre-pandemic levels, particularly in China, where retail sales trends have been affected by declining house prices, weaker household income growth, increased precautionary savings, and an aging population, among other structural factors.